Balancing Out Commodity Exposure in ETFs

By Brendan Conway

In commodity ETFs, it can be tough to avoid favoring energy at the expense of metals or soft commodities. There’s usually some implicit bet on a given commodity. And there are various maladies tied to shoving futures contracts into an ETF. Street One Financial’s Paul Weisbruch takes a look this morning at an oft-overlooked ETF that combats one of those problems, the GreenHaven Continuous Commodity Index Fund (GCC), and comes away impressed.

The four-year-old, $630 million ETF’s exposure is spread equally among 17 different commodities via the futures market, with roughly 3.2% assigned to each area, from orange juice to silver to lean hogs and sugar. It’s not an ETF that lends itself to any particular commodity theme except for broader demand across the spectrum. Which is fine, since it’s probably the key reason an investors would want to hold GCC in the first place.

An ETN commonly used for this purpose, the $2.5 billion the iPath Dow Jones-UBS Commodity ETN (DJP), is somewhat lumpier in its exposure. Its weighting currently leans about 13% apiece to sweet light crude and natural gas, with another 7.75% for Soybeans and 6.83% in gold, according to XTF.com, with 19 components overall. As its larger asset levels show, many investors are perfectly happy to be well-lopsided in energy instead of well-rounded in commodities overall. But, quite predictably, it got clocked by the last few years’ glut in natural gas. It will tend to reflect trends in energy somewhat more than what happens in any particular soft commodity or metal.

The Greenhaven ETF, up about 5.5% this year, “has demonstrated the ability to deliver strong returns since its inception in early 2008. Having celebrated its fourth birthday recently as an ETF, GCC is up 0.93% since inception while DJP has lost 24.03%,” writes Weisbruch.

As is often the case in commodity ETFs and ETNs, the fees can take a mutual-fund-like bite over time. The Greenhaven ETF has a 0.85% expense ratio while the iPath Dow Jones ETN is at 0.75%.

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